Report on the Implementation of the Central and Local Budgets for 1999 and on the Draft Central and Local Budgets for 2000

(Delivered at the Third Session of the Ninth National People's Congress on March 6, 2000)

Xiang Huaicheng

Minister of Finance

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Note:

1. News dispatches are embargoed until the conclusion of today's meeting.

2. The official version of this speech in Chinese will be released by the Xinhua News Agency.

Fellow Deputies,

I have been entrusted by the State Council to submit a report on the implementation of the central and local budgets for 1999 and on the draft central and local budgets for 2000 for your examination and approval, and also for suggestions and comments from members of the National Committee of the Chinese People's Political Consultative Conference.

I. Implementation of the Central and Local Budgets for 1999

Under the correct leadership of the Party Central Committee and the State Council, in 1999 the people throughout the country worked hard together and scored great achievements in the national economy and all social undertakings. After the central budget for 1999 was approved at the Second Session of the Ninth National People's Congress, some problems arose in the development of the national economy. Fixed asset investment increased slowly and exports and direct foreign investment slumped. Consumer demand was sluggish, there was a protracted decline in prices and effective domestic demand was weak. The Party Central Committee and the State Council analyzed the economic situation and resolutely made an important policy decision to step up efforts to implement a pro-active fiscal policy to maintain the good momentum in the economic recovery in the second half of 1998. This pro-active fiscal policy was implemented through some major measures. On the basis of the amount of government bonds set in the budget in early 1999, the Ministry of Finance issued an additional 60 billion yuan of long-term government bonds to the commercial banks, of which 30 billion yuan was listed as an addition to the deficit in the central budget for 1999 and the remainder was borrowed by the central government in the name of local governments and was not listed in the central budget. The incomes of low- and medium-income urban residents were increased by a fairly large margin. Wages and salaries of employees in government departments and institutions were raised. The policies on tax refunds for exports and internal taxation were revised. Reduction in revenue and increase in expenditures were compensated by new increases in revenue and readjustments in the pattern of expenditures rather than by further increasing the central deficit. In August 1999 the Eleventh Meeting of the Standing Committee of the Ninth National People's Congress examined and adopted the proposal made by the State Council to issue additional government bonds for increasing fixed asset investment and its plan to revise the central budget. These macro-control measures which focus on the implementation of a proactive fiscal policy have proved to produce notable results. The national economy grew steadily, gross domestic product rose by 7.1 percent over that of the previous year and the quality of the operation and performance of the economy improved notably. All reforms proceeded smoothly and the living standards of the people continued to improve.

On the basis of steady economic growth, the central and local budgets for 1999 were implemented fairly satisfactorily. Total revenue in the central budget for 1999 came to 639.6 billion yuan, or 108.7 percent of the budgeted figure. This figure includes 579.8 billion yuan in revenue collected by the central government, or 109.6 percent of the budgeted figure, and 59.8 billion yuan turned over to the central government by local authorities, the same as the budgeted figure. Total expenditures in the central budget for 1999 amounted to 819.3 billion yuan, or 106.6 percent of the budgeted figure, including 409.8 billion yuan of expenditures for the central government, or 92.9 percent of the budgeted figure, and 409.5 billion yuan in the form of subsidies for local authorities, or 124.9 percent of the budgeted figure. Central expenditures exceeded revenue, leaving a deficit of 179.7 billion yuan, 600 million yuan less than the amount of 180.3 billion yuan approved at the Eleventh Meeting of the Standing Committee of the Ninth National People's Congress when the projected deficit was revised.

The actual figures for some items in the central budget vary greatly from those in the draft budget formulated in early 1999. Total receipts from tariffs, sales tax on imported goods and value-added tax came to 192 percent of the budgeted figure, mainly because the government stepped up efforts to combat smuggling and encouraged importing through legal channels and because the Customs authorities tightened tax collection and management, increasing revenue by a big margin. Total business tax collected came to 86.1 percent of the projected figure and income tax paid by state-owned enterprises, 70.5 percent. This is mainly because the government lowered the interest rates for loans several times and the revenue turned over by financial institutions was reduced. Total receipts from stamp tax on securities transactions came to 165.6 percent of the budgeted figure, since a greater volume of stock transactions resulted in more revenue. Total expenditures for capital construction came to only 79.6 percent of the budgeted figure because some funds for capital construction originally listed in the expenditures in the central budget were allocated to local authorities in the form of subsidies.

Total government bonds in the central budget issued in 1999 amounted to 401.5 billion yuan. Apart from 30 billion yuan issued in the name of the local authorities, central revenue from generation of debt in 1999 totaled 371.5 billion yuan, or 100 percent of the readjusted budgetary figure. This figure includes 191.1 billion yuan for servicing domestic and foreign debt, 179.7 billion yuan for offsetting the deficit for 1999 and 700 million yuan for establishing a central budget debt repayment fund. In addition, total revenue from funds controlled by the central government came to 134.9 billion yuan and total expenditures of the central government taken from the above funds amounted to 134.9 billion yuan.

Total revenue in the local budgets in 1999 came to 967.5 billion yuan, or 109.9 percent of the budgeted figure. This figure includes 558 billion yuan in revenue collected by local authorities, or 101 percent of the budgeted figure, and 409.5 billion yuan in subsidies granted to local authorities by the central government, or 124.9 percent of the budgeted figure. Total expenditures in the local budgets amounted to 963.7 billion yuan, or 109.5 percent of the budgeted figure. This figure includes 903.9 billion yuan of expenditures in the local budgets, or 110.2 percent of the budgeted figure, and 59.8 billion yuan turned over to the central government, or 100 percent of the budgeted figure. Total local revenue exceeded expenditures, leaving a surplus of 3.8 billion yuan. This figure represents the overall balance among all regions of the country. Some regions are still experiencing serious financial problems because of uneven development in the country.

From the implementation of the central and local budgets as mentioned above, total revenue for the whole country in 1999 came to 1.1377 trillion yuan, or 105.3 percent of the budgeted amount. Expenditures for the whole country totaled 1.3136 trillion yuan, or 104.2 percent of the budgeted figure. Total expenditures exceeded revenue, leaving a deficit of 175.9 billion yuan. These figures may change a little when the final calculations are made for the central and local budgets.

To successfully implement the budgets for 1999, the State Council and local people's governments at all levels concentrated on accomplishing the following tasks.

1. Revenue collection and management was strengthened to ensure a steady increase of revenue.Total national revenue for 1999 exceeded one trillion yuan, an increase of 150.1 billion yuan over that of the previous year, or an increase of 15.2 percent. The ratio of revenue to GDP increased from 11.6 percent in 1997 and 12.4 percent in 1998 to 13.9 percent in 1999. This is a result of the steady growth of the national economy, the effective operation of the financial and taxation system and the continuous improvement of tax collection and management. Total receipts from tariffs, value-added tax on imports and sales tax grew by 70.6 billion yuan over the 1998 figure, an increase of 81.2 percent. Total revenue from the stamp tax on securities transactions grew by 4 billion yuan, an increase of 19.4 percent and 10 billion yuan of overdue taxes were cleared up. The revenue increases from the above factors totaled 84.6 billion yuan, accounting for 56.4 percent of the revenue increase in 1999. Total revenue from domestic value-added and sales taxes, which are closely connected to enterprise operation, increased by only 5.8 percent, and revenue from the business tax, only 5.7 percent, both lower than the rate of economic growth. This shows that the sharp increase of revenue in 1999 did not put a heavy tax burden on enterprises and that the tax burden borne by the Chinese enterprises remained below the world's average level. In addition, we conscientiously examined arbitrary charges and eliminated a total of 388 administrative charges and contributions to government-controlled funds which added to the burden on enterprises and involved about 18 billion yuan.

2. A pro-active fiscal policy was conscientiously implemented and the role of state finance in macro-control was utilized.First, local authorities and the departments concerned continued to do a good job in selecting projects to be funded by government bonds and in controlling the use of funds. Projects were selected on the basis of the investment orientation specified by the State Council and no redundant projects were launched. Expenditures in the budget and the plan for the use of loans to local authorities were carefully arranged, and supervision and examination of capital utilization were tightened to ensure that funds raised through government bonds were used effectively. Second, the policy on personal income distribution was revised. The basic cost of living for employees laid off from state-owned enterprises, unemployment insurance benefits and subsistence allowances for urban residents were raised by a big margin. In addition, wages and salaries of employees in government departments and institutions and pensions for retirees were increased, and pension standards for retirees from state-owned enterprises and benefits for some disabled servicemen and family members of revolutionary martyrs who enjoy special treatment from the government were raised. More than 84 million employees and residents benefited from this policy. Financial departments and other departments concerned formulated the plan, raised funds and implemented the policy in a short period of time. In most of the areas, employees and residents received the added payments before National Day on October 1. Considering that some localities were experiencing financial difficulties and that insufficient funds were allocated in the budget in the beginning of the fiscal year, the central government made transfer payments totaling 34.3 billion yuan from the amount of revenue above the budgetary target to 24 provinces, autonomous regions and municipalities directly under the central government to enable them to carry out readjustments in income distribution. The policy was warmly welcomed by cadres and employees, especially people in the low-income bracket, and its implementation stimulated consumer demand and created a joyful atmosphere for the whole nation as they celebrated the 50th anniversary of the founding of the People's Republic of China and the return of Macao to the motherland. Third, some tax policies were modified in a timely manner. To boost exports and develop international markets, we twice raised tax refund rates for some commodities. The average tax refund rate for exports increased by 5.5 percentage points to over 15 percent. The total amount of refunds reached 62.6 billion yuan in 1999, 15.6 billion yuan more than the budgeted figure and an increase of 43.5 percent over that of the previous year. To encourage investment, on July 1, 1999, the fixed asset investment regulatory tax on actual investment was cut in half and enterprises purchasing domestic equipment for technological transformation projects in conformity with the state industrial policies were allowed to take a 40 percent deduction in their corporate income tax payments. To properly regulate personal incomes, narrow gaps in income distribution, encourage people to spend and invest more of their savings and boost domestic demand, on November 1, 1999 the individual income tax on personal savings deposit interest was reinstated.

3. Great efforts were made to readjust the pattern of expenditures to effectively guarantee funding for key projects.In conformity with the requirements of the development of a socialist market economy, the pattern of budgetary expenditures was gradually readjusted and optimized at all levels in 1999 to ensure financing for key items and guarantee all expenditures which have a direct bearing on reform, development and stability. Total expenditures for the whole country in 1999 increased by 21.7 percent over the 1998 figure, with total expenditures in the central budget up by 27.1 percent, a big increase not seen for many years. The key items in the central budget for which funding was guaranteed, including subsidies to local authorities consisted of: (1) Expenditures for capital construction totaling 148.6 billion yuan, an increase of 74.9 percent over the 1998 figure and expenditures for technological upgrading of enterprises and subsidies to interest payments totaling 6.1 billion yuan. (2) Expenditures for social security totaling 36 billion yuan, an increase of 110 percent over the 1998 figure. This includes 25.7 billion yuan for the basic cost of living for workers laid off from state-owned enterprises and pensions for retirees from state-owned enterprises, an increase of 170 percent over the 1998 figure. (3) Expenditures for education from the central budget, which were increased by one percentage point over the level of 1998, with actual expenditures amounting to 12.7 billion yuan. If consideration was given to a number of factors, for instance, delegating the management of some institutions of higher learning under the central government to local authorities, total education expenditures from the central budget increased by 23 percent over the 1998 figure. Actual spending on the establishment of a scientific and technological development fund, a knowledge innovation project and increased investment in basic research and key scientific research projects amounted to 9.8 billion yuan, an increase of 14.6 percent over the 1998 figure. (4) Anti-poverty expenditures totaling 9.1 billion yuan. Efforts to help poor areas were stepped up last year. In addition, the central government also arranged the necessary funds for the establishment of a special central government fund for social security and for helping employees from central government-run enterprises that went bankrupt. While working to improve the pattern of expenditures, we actively explored new ways of managing expenditures. Financial management was standardized and improved and efficiency of the utilization of funds was raised through extensive experimentation with the government procurement system, zero-base budgeting on a trial basis and implementation of a follow-up monitoring and feedback system for the utilization of the various special funds.

4. Efforts to formulate financial laws and regulations were stepped up to strengthen supervision and management and promote the administration of finance in accordance with the law.Following the principles of managing state affairs and handling financial affairs according to law, we accelerated the pace of financial legislation. The Accounting Law was revised in 1999 and over 60 financial rules and regulations were formulated, including the Interim Rules on Punishment of Violations of the Law and Indiscipline in Implementing the Central Budget. Greater efforts were made to examine the special funds financed through government bonds, subsidies for preventing serious floods, funds for construction of water conservancy projects, extrabudgetary funds of departments under the central government, funds for fighting poverty and social security funds. A sampling survey was organized to examine the quality of accounting data of one hundred alcoholic beverage producers and the annual accounting statements of state-owned enterprises audited by intermediary organs. A number of cases involving violations of financial laws, rules and regulations and financial indiscipline were uncovered and the persons involved were prosecuted. Taxation and Customs authorities and other departments responsible for tax collection and management stepped up their efforts to levy taxes according to law and severely dealt with acts of tax evasion and tax fraud. We conducted a review and rectification of public accounting firms and assets appraisal offices. By the end of December 1999 the work of restructuring to separate them from relevant departments had been basically completed. In addition, we prepared and submitted the 1999 revenue and expenditures plan for extrabudgetary funds of departments under the central government and fully implemented the method of "separating revenue from expenditures" by putting receipts from administrative charges, fines and confiscated funds into the state treasury and incorporating all extrabudgetary funds into special accounts. These measures have played an important role in rectifying financial and economic order, plugging up loopholes in revenue and expenditures, holding down economic crime and improving the efficiency of the utilization of funds.

Fellow deputies,

The people's congresses and their standing committees and auditing organs at all levels should supervise the implementation of the budget in accordance with the Constitution and relevant laws. This plays an important part in improving government administration. The Decision on Improving the Examination and Supervision of the Central Budget examined and approved at the Thirteenth Meeting of the Standing Committee of the Ninth National People's Congress contributed greatly to the standardization of budgetary management and to the promotion of reform and development of finance and taxation. In June 1999 the Standing Committee of the National People's Congress pointed out some outstanding problems in the implementation of the central budget while examining the report on the final accounts for the central budget and the audit report on the central finance for 1998. The State Council paid great attention to this, instructing the Ministry of Finance to carefully investigate and solve these problems. At the National Conference on Financial Work held in July 1999 and during the education about the need to study, to be politically minded and to be honest and upright in its organs, the Ministry of Finance made a special in-depth study of the problems and formulated a concrete plan for solving them. Acts in violation of the regulations were promptly rectified and dealt with. With regard to problems concerning administration or systems, reform measures were introduced in an active but prudent manner with some of them implemented while preparing the budget for 2000.

Reviewing the implementation of the budget for 1999, we are also fully aware that problems still exist in our financial work and the implementation of the budget which cannot be neglected. First, violations of regulations and criminal activities are still serious in financial and economic work, and financial and economic order is chaotic. It is very common that laws already enacted are not fully observed or enforced and law-breakers are not prosecuted. Second, funding cannot be fully guaranteed and budgets at all levels are under great pressure, especially in some counties and townships with great financial difficulties. Some government departments and institutions fail to pay their employees on time and funding for some items that should be guaranteed are not made available. Third, efforts to readjust the pattern of expenditures, though already initiated, are made too slowly and too ineffectively and government finance is still taking on too many matters. The problem of providing unnecessary funds to some items and failing to fund other necessary items has yet to be fundamentally solved. On the basis of steady economic development, all these problems must be gradually solved by deepening the reform of finance and taxation, improving the financial and economic system and the functions of finance, standardizing the economic order and tightening financial supervision and management.

II. The Draft Central and Local Budgets for 2000

We are faced with many favorable conditions in economic development this year. The international economic environment as a whole is becoming good and the world economy and trade should continue to grow. The further implementation of a number of policy measures for boosting domestic demand and the deepening of reform and opening up should have a positive effect on the growth of the national economy. The breakthrough in negotiations for China's entry into the World Trade Organization will greatly promote a shift in the mode of growth in China's economy and trade and improve the quality of growth. However, we are also faced with many difficulties and problems. There are still some hidden problems in world economic development, competition in the international market is becoming more fierce and effective demand is weak in the operation of the national economy. The key and basic approach to solving these problems is faster development. "Development is an absolute principle." The objective economic reality compels us to intensify efforts to implement policy measures designed to promote economic development and continue to implement a pro-active fiscal policy.

Fellow Deputies,

Faced with the impact of the Asian financial crisis and weak effective domestic demand in 1998, the Party Central Committee and the State Council resolutely made a strategic policy decision to follow a pro-active fiscal policy, continued to take more effective policy measures, expanded the role of fiscal policy, paid great attention to making good use of the function of monetary policy and regulated economic operation through a combination of various means. Not only was investment in infrastructure development increased, but support was given to technological upgrading of enterprises. While focusing on the stimulation of investment, we also increased personal incomes to guide and encourage consumer spending. We worked hard to boost domestic demand, persisted in opening wider to the outside world and did everything possible to open up international markets. We lost no time in deepening reforms and ensured social stability. Our experience over the past two years has proven that implementation of our pro-active fiscal policy produces notable results. Although the deficit and the debt have increased somewhat, implementation of this policy has helped ensure social stability, maintained sustained, rapid and sound development of the national economy and raised the people's standard of living. This is a price the government had to pay for exercising macro-control of the economy, so it is worthwhile.

In view of the actual needs of the current economic development, we still need to take necessary policy measures for implementation of a pro-active fiscal policy to ultimately achieve the goal of boosting domestic demand and promoting steady economic growth and ensure high quality growth and good performance for the national economy in the process of restructuring and scientific and technological progress. There are the necessary conditions for implementing a pro-active fiscal policy without great risk. By international standards, there is still some room for China to issue more bonds. As long as sustained, rapid and sound economic growth is maintained, economic efficiency is constantly improved and revenue is rapidly increased, our ability to service the debt will be continuously enhanced. We also pay close attention to the national debt and the deficit. We intensify efforts to study the ability to collect revenue and the public risk, closely watch the operation of finance and work out necessary countermeasures. We pay great attention to preventing financial risks, cut down on unnecessary expenditures and work hard to bring the deficit under control. In addition, we improve policy measures to strengthen the guiding and stimulating role of budgetary funds.

In consideration of all the above factors, we have prepared the central budget for 2000 and focused on the following aspects.

1. Continuing to strengthen infrastructure development.Investment needs to be increased to ensure that infrastructure projects funded by government bonds over the past two years are completed as soon as possible and begin yielding economic returns. More needs to be invested in preparation for the development of the western region and for a number of other key projects which have a direct bearing on the growth of the national economy. Investment in capital construction from the central budget will total 89.3 billion yuan (including subsidies for local authorities).

2. Intensifying efforts to support the reform and development of state-owned enterprises.We should continue to do better in technological upgrading of key industries, enterprises, products and industrial processes. Funds and subsidies on interest payment from the central budget for technological upgrading of enterprises will be 16.5 billion yuan (including subsidies for local authorities).

3. Investing more in social security and fully implementing the policy to readjust income distribution introduced in 1999.Funds earmarked for this purpose from the central budget for 2000 will total 70.7 billion yuan, including 3.7 billion yuan to fund subsistence allowances for workers laid off from enterprises under the central government, 5 billion yuan allocated through transfer payments to make up for the shortage in budgetary funding for subsistence allowances for workers laid off from state-owned enterprises in the old industrial bases and the central and western regions which are in financial straits, 8.8 billion yuan to make up for the insufficient budgetary funding of old-age pensions for retirees from coal, nonferrous metal, military and other industries which are in financial difficulty and 53.2 billion yuan as subsidies for some areas to raise the social security benefits and increase the wages and salaries of employees in government departments and institutions.

4. Stepping up efforts to increase investment in education, science, technology and agriculture and ensure that the rate of increase is higher than that of the regular revenue.The proportion of expenditures for education in the central budget will be increased by one percentage point over the level in 1999. A total of 16.5 billion yuan will be allocated for education, an increase of 29.7 percent over that of the previous year. Funds for science and technology will be 11.2 billion yuan, an increase of 14.1 percent over the 1999 figure. Expenditures for agricultural administration and the support of agricultural production will come to 7.9 billion yuan, an increase of 14.8 percent over the 1999 figure.

5. Appropriately increasing expenditures for state security.Since the army, armed police forces and procuratorial, judicial and public security organs no longer engage in business or run enterprises, an additional 5.6 billion yuan will be provided to cover the necessary expenditures for the performance of their functions. Expenditures for national defense will total 120.5 billion yuan, an increase of 12.7 percent over the 1999 figure, the same as the increase of recent years. These funds will mainly cover the increased salaries and allowances for officers and men in the army as well as expenditures for troops stationed in Macao.

The GDP in 2000 is expected to maintain a growth rate of about seven percent. This will lay a foundation for increasing revenue. At the same time, we are clear that there are still some factors which will restrict the growth of revenue. First, Customs authorities tightened supervision and stepped up their efforts to crack down on smuggling, resulting in an exceedingly high increase of 81.2 percent in import duties in 1999. The figure for this year will remain basically the same. Second, the state lowered the interest rates for loans seven times and the business tax rate for banking and insurance, and consumer demand in the domestic market is weak. Revenue from business taxes may be on the decline. Third, we will adopt the policy of tax readjustment to boost investment demand, specifically, temporarily halting collection of fixed asset investment regulatory taxes and partial reduction or exemption of enterprise income taxes for investment in domestic equipment purchase. This will result in reduction of some revenue. Fourth, to encourage exports and expand international cooperation, total export tax refunds for this year will total 80 billion yuan, an increase of 27.8 percent over the 1999 figure. This will directly reduce revenue.

On the basis of an overall analysis and assessment of revenue and expenditures in 2000, the State Council prepared a draft central budget for 2000. Total revenue in the central budget for 2000 is 690.4 billion yuan, 50.8 billion yuan more than the actual figure of the previous year, or an increase of 7.9 percent. This figure includes 630.6 billion yuan collected by the central government, 50.8 billion yuan more than the actual figure for 1999, or an increase of 8.8 percent. Local governments will turn over to the central government 59.8 billion yuan, the same as the 1999 figure. Expenditures in the central budget total 920.3 billion yuan (including interest on debts), 101 billion yuan more than the actual figure for 1999 and an increase of 12.3 percent. A total of 480.1 billion yuan of these expenditures will be incurred at the central level, 70.3 billion yuan more than actually spent last year and an increase of 17.2 percent. Subsidies to local authorities total 440.2 billion yuan, 30.7 billion yuan more than the actual figure for 1999 and an increase of 7.5 percent. A deficit of 229.9 billion yuan will be left after setting revenue against expenditures. It is worth noting that the increase in the deficit in the central budget this year mainly results from reform of the method of preparing the budget. A sum of 74.9 billion yuan in expenditures covering interest on government bonds which was originally not listed in the regular expenditures in the central budget and not reflected in the deficit is being listed in the regular expenditures in the central budget and is reflected in the deficit of the same year. This does not mean that more government bonds will be issued. This helps fully reflect expenditures in the central budget and makes it easier to monitor and control debts. This also conforms to common international practice. According to the method of calculation used last year, the deficit in the central budget would be 155 billion yuan, 24.7 billion yuan less than the 1999 figure.

The central budget for 2000 prepared according to the dual-budget system is as follows: Total regular revenue in the central budget is 694.2 billion yuan and expenditures in the central budget total 641.5 billion yuan. A surplus of 52.7 billion yuan is left after setting revenue against expenditures and this amount has been transferred to the construction budget. Total revenue in the central construction budget is 48.9 billion yuan and expenditures in the central construction budget total 278.8 billion yuan, with expenditures exceeding revenue by 229.9 billion yuan.

Funds to service domestic and foreign debts in the central budget in 2000 amount to 158.1 billion yuan. The deficit totaling 229.9 billion yuan also has to be covered in the same year. The central government will issue 50 billion yuan of bonds for local governments. The government bonds to be issued in 2000 total 438 billion yuan, of which 388 billion yuan will be counted in the central budget, 16.5 billion yuan more than the 1999 figure. In addition, total revenue from funds controlled by the central government for 2000 is 130.3 billion yuan and projected expenditures for funds controlled by the central government come to 130.3 billion yuan.

Total revenue in the local budgets for 2000 amounts to 1.0434 trillion yuan, an increase of 7.8 percent over the actual 1999 figure. Revenue collected by local governments comes to 603.2 billion yuan, 45.2 billion yuan more than the actual figure for 1999 and an increase of 8.1 percent. Subsidies to local governments from the central budget total 440.2 billion yuan, an increase of 7.5 percent. Total expenditures in the local budgets amount to 1.0434 trillion yuan, an increase of 8.3 percent over the actual figure for 1999. This figure includes expenditures of 983.6 billion yuan in the local budgets, 79.7 billion yuan more than the actual figure for 1999 and an increase of 8.8 percent. It also includes 59.8 billion yuan to be turned over to the central government. Revenue and expenditures are balanced in the local budgets.

The draft central and local budgets for the year 2000 break down as follows: revenue totals 1.2338 trillion yuan, an increase of 96.1 billion yuan, or 8.4 percent over the actual figure for 1999, and expenditures total 1.4637 trillion yuan, an increase of 150 billion yuan, or 11.4 percent over the actual figure for 1999.

It should be explained that the central budget this year was prepared in accordance with the Budget Law and the Regulations for Implementation of the Budget Law. While examining the report on the final accounts for the central budget and the audit report on the central finance for 1998 last June, the Standing Committee of the National People's Congress proposed preparation of detailed budget items and departmental budgets. The Ministry of Finance established a special group for this purpose. By soliciting opinions from the departments concerned, the Ministry worked out a plan for the improvement of the central budget for 2000 and suggested that budgetary management be tightened. The State Council approved implementation of this plan. The central budget for this year was prepared two months earlier than in past years. In years to come, formulation of the budgets will be gradually completed even more in advance. Based on current classification of revenue and expenditures, the budget for this year was prepared in as much detail as possible. Departmental budgeting is the usual practice in countries with market economies and is also the orientation of reform of China's budget preparation. This reform involves many departments and much essential work and is technically difficult. To ensure steady progress in the reform, we selected the Ministry of Education, the Ministry of Agriculture, the Ministry of Science and Technology and the Ministry of Labor and Social Security on the basis of the full cooperation of all departments under the central government and the trial preparation of departmental budgets and asked the selected departments to submit their departmental budgets to the National People's Congress for your examination and approval. As the preliminary reform of the method of budget preparation is being introduced this year, the classifications and quotas will need to be further revised.

III. Deepening Financial Reform, Standardizing Managementof Revenue and Expenditures, Stepping up Efforts to Handle Financial Affairs in Accordance with the Law and Striving to Implement the Budget for 2000

The year 2000 is the final year of the Ninth Five-Year Plan and is crucial to efforts to tackle difficult problems in reforms and get state-owned enterprises out of their plight. Fulfilling the financial tasks for this year, making good use of the role of finance and tightening financial management are crucial to efforts to maintain sustained, rapid and sound development of the national economy, accelerate the establishment of a socialist market economy, attain the second-step strategic objective for the modernization drive and make a good start for the new century.

1. Continuing to tighten investment management and taking full advantage of the macro-control function of finance.The expansion of investment in infrastructure development over the past two years has produced the desired results. This fully shows that the government enjoys advantages in regulating the operation of the economy under a socialist market economy and that our objectives are attained. The major reasons for this are that funds are properly invested, managed and utilized and that projects are meticulously examined before approval. On the basis of a review of the experience, funds raised this year through the issuance of government bonds will still be used according to the direction and priorities for investment specified by the State Council. All projects must be placed under overall planning, rationally distributed and developed in strict accordance with the proper procedures for capital construction. In the process of actual construction, the design should be meticulous, the construction scientifically carried out and supervision strict to ensure the quality of projects. We should also conscientiously select technological transformation projects, take into consideration the demand of domestic and international markets, prove their feasibility through scientific analysis and carefully make policy decisions. These projects should aim at scientific and technological advances and industrial upgrading. We must ban disguised redundant projects or projects to blindly expand production capacity. Through close cooperation with other departments concerned, financial departments at all levels should tighten special supervision and examination of funds to prevent them from being misappropriated or diverted to other purposes. We must resolutely expose and punish violators once they are discovered.

2. Strengthening tax collection and management to ensure sustained and steady increase in revenue.The Fifteenth National Party Congress defined the grand objective of improving government finance. Comrade Jiang Zemin emphasized many times that "government finance has a direct bearing on the overall interests of the country" and "improved government finance is an important condition for ensuring the development of all economic and social undertakings." An important component of the effort to improve government finance is to establish a mechanism for ensuring a steady increase in revenue, promote the administration of taxation in accordance with the law and strengthen tax collection and management. Ensuring a steady increase in revenue is a most important task in terms of efforts to build up the national strength, increase the overall strength of our country, meet the needs of reform, development and stability and achieve the objectives of our pro-active fiscal policy. Therefore, the principle of "tightening collection and management, plugging up loopholes, punishing corruption and clearing up overdue taxes" should be thoroughly implemented, the basic work of tax collection and management should be strengthened, all laws and regulations on taxation should be strictly enforced, taxation should be administered in accordance with the law and all due taxes must be collected. All local authorities and government departments should conscientiously implement the Circular of the State Council on Reversing the Local Policy of First Collecting Taxes and Then Refunding Taxes. They are not allowed to attract investment through a policy of first collecting taxes and then refunding taxes or other means of tax reduction and exemption in violation of the provisions of tax laws. Moreover, they cannot alter tax laws or tax policies through any means. They cannot approve tax deferrals or exemption without authorization or collect "more taxes than prescribed." We must safeguard the uniformity and authority of tax laws. Beginning with the year 2000, all local authorities must cease implementing their policy of first collecting taxes and then refunding taxes, carefully carry out inspections and reverse it. Local authorities who refuse to reverse their policy and continue to apply it without authorization will lose their transfer payments and special subsidies from the central budget and the personnel concerned will be investigated for responsibility. We should improve and strengthen the means of tax collection and management, deepen the reform in this regard, tighten examination, severely deal with all acts of tax evasion and tax fraud and particularly take resolute measures to severely punish the criminal gangs which engage in smuggling, trafficking in smuggled goods and tax evasion through internal and external collaboration. Governments at all levels should redouble their efforts to support the work of the departments responsible for the collection and management of revenue.

3. Tightening budgetary management and steadily promoting the reform of the budget system.An important task of governments and financial departments at all levels is to conscientiously implement the Decision of the Standing Committee of the National People's Congress on Tightening the Examination and Supervision of the Central Budget. As soon as the central and local budgets are approved by the National People's Congress, finance departments at all levels should promptly examine and approve the budgets of all departments, and these departments should promptly examine and approve the budgets of their subordinate units. All government departments applying to obtain government funds must follow the proper budgetary procedures, prepare the budget before spending and strictly implement the methods for expenditure management. The expenditures of all departments and their subordinate units should be classified in set budget items, with no shifting of funds between different budget items.

Reform of the budget system is an important component of the current reform of finance and an objective requirement for implementing the principles of ruling the country by law and ensuring that the government performs its official duties in accordance with the law. Moreover, it is a necessary requirement for strengthening economic and budgetary supervision and an effective means of building a clean and honest government through improvement of the system. The current reform of the budget system consists of several aspects. First, budget items will be more detailed and budgets of government departments will be prepared. We are reviewing experiments in the central budget and gradually applying the successful practices to other budgets. Beginning in the year 2000, budget items in local budgets will be more detailed and government departments will be required to prepare their budgets. Second, we will conduct investigations and studies and formulate reasonable standards for determining the size of the staff and expenditures in light of specific conditions. This will provide an important foundation for preparing budgets and examining their implementation. Third, a thorough review will be made of the revenue and expenditures in all departments preparing budgets, which will lay a good foundation for the reform of budget preparation. Fourth, on the basis of the notable results obtained in experimentation with government procurement, we will gradually expand the range of government procurement to cover purchase of all office supplies and office equipment, construction of public facilities and related services. Fifth, we will begin studies on the implementation of the treasury single account system as a basic measure to tighten management, combat corruption and build a clean and honest government.

4. Intensifying efforts to readjust the pattern of expenditures to put more emphasis on key items and ensure that the major principles and policies of the Party and the government are implemented.As the functions of the government are altered under a socialist market economy, government spending should gradually focus on guaranteeing public expenditures to ensure that the major principles and policies of the Party and the government are implemented. Following a principle of "focusing on certain tasks and putting others aside," we must step up our efforts to readjust the pattern of expenditures and regard this task as a pressing and difficult one in our current financial work. First, we will gradually standardize the scope of government funding so that state finance no longer has to support so many people and cover the excessive expenses of institutions. The current local institutional restructuring presents an excellent opportunity and makes it possible for local governments to determine the number of government departments, the number of posts and the size of employees, make arrangements for redundant personnel and strictly control personnel expenses. Second, the pace of restructuring of institutions will be accelerated. Different schemes will be worked out for different institutions. Profit-making institutions must be pushed into the market to operate independently without government funding. Institutions that are profit-making and work for public interest should have their government funding appropriately reduced on the basis of the conditions and ability of these institutions to generate their own incomes. Undertakings for public interest should receive more financial support. Funding should be guaranteed for development in key projects and fields such as science, technology, education, social security, agriculture and ecological improvement. We should improve a system of disaster prevention and control, support projects to protect natural forests and restore reclaimed land to forests, step up anti-poverty efforts and increase farmers' incomes. Third, direct government investment in competitive industries will be gradually reduced to create a good climate for fair competition among enterprises. Fourth, greater efforts should be made to increase funding for government departments to ensure that their employees are paid on time and in full.

5. Doing better in social security work and accelerating the improvement of the social security system.An improved social security system is an important prerequisite for pushing forward the reform of state-owned enterprises, an important guarantee for social stability and an important barometer of economic and social progress. The priority of the current social security work is to ensure that the basic cost of living for workers laid off from state-owned enterprises, pension benefits for retirees from state-owned enterprises and subsistence allowances for needy urban residents are distributed on time and in full. Contributions to fund the social security system must be collected in strict accordance with the law. The coverage of social security should be expanded and the collection rate should be raised. Contributions from enterprises to the social security program which are in arrears should be collected. Funding for social security should be raised through a variety of channels. By appropriately readjusting the pattern of expenditures and increasing budgetary funding for social security, we will gradually raise the proportion of total expenditures for social security. The system for managing social security funds should be further improved. Scientific, reasonable rates should be set for social security payments and such payments should be made by relevant government departments. Management of social security funds must be exercised according to the principle of "separating revenue from expenditures". Oversight and inspection should be tightened to prevent misappropriation of such funds and ensure that all funds are earmarked only for social security purposes and that special staff are responsible for managing such funds.

6. Vigorously promoting the reform of taxes and fees and continuing to rationalize distribution relations.The reform of taxes and fees is an essential requirement for the sound development of a socialist market economy. This reform is crucial to efforts to standardize the distribution order, reduce the burden on society, promote administration by law, hold down corruption and enhance the government's ability to exercise macro-control. The reform will be implemented step by step on the basis of overall planning. The process of legislation concerning the reform of taxes and fees for transport and motor vehicles has been completed. Preparations for introducing the gasoline and diesel oil tax and the vehicle purchase tax have been basically made and the taxes will be collected when conditions permit. The reform of relevant taxes and fees in rural areas is another major reform in China's countryside instituted since the founding of the People's Republic in 1949, following the agrarian reform and the implementation of the household contract responsibility system. The Party Central Committee has defined the guiding ideology, basic principles and major policy measures for this reform. This year the central government will select Anhui Province to experiment with the reform throughout the province while other provinces, autonomous regions and municipalities directly under the central government can experiment with the reform in a few counties and cities. The experience gained in the experiments will be promptly reviewed to improve implementation plans, and the reform will then be introduced to other areas.

7. Strengthening financial supervision and management and rectifying financial and economic order.The current chaos in financial and economic order is seriously disrupting the operation of the economy and giving rise to corruption. Greater efforts must be made to rectify it. This year we will focus on several tasks. First, supervision and management of funds should be tightened. All funds, especially those earmarked for key projects, should be monitored throughout the process of budgeting, allocation and utilization, and results of the utilization of these funds should be reported. Leading cadres concerned must bear the responsibility if these funds are misappropriated, wasted or diverted to other purposes without authorization. Second, we should continue to implement the central government's regulations on managing administrative fees, fines and confiscated funds according to the principle of "separating revenue from expenditures". We should take the initiative to strengthen budgetary management and incorporate all extrabudgetary funds into special accounts. We should fully implement a method whereby "relevant organs make out invoices for administrative fees and fines which must be paid to a bank account under the unified management of a government finance department" to ensure that those who determine the amounts of fees and fines or make out invoices cannot collect them or use them themselves. Third, the Accounting Law should be conscientiously implemented. The basic accounting work and the quality of accounting data should be improved. An accountant assignment system and a chief accountant system should be implemented to tighten accounting supervision and severely deal with the acts of falsifying bills, accounts and audit reports. Fourth, we should lose no time in rectifying public accounting and auditing firms and other intermediary organs to standardize their business operation and strengthen self-discipline to provide objective, fair and highly efficient services to the public. Fifth, financial laws should be further improved and enforcement of these laws should be strengthened. The system of administrative review for finance departments should be improved. We should establish and implement a responsibility system for enforcement of financial laws and an evaluation system. Greater efforts should be made to ensure that financial affairs are handled in accordance with the law.

8. Adhering to the principle of hard work, plain living and building the country through diligence and thrift, fostering the concept of frugality and utilizing funds in an economical manner.Hard work, diligence and frugality are the fine traditions of the Chinese nation and embody the Party's fine style of work formed in the long revolutionary struggles and economic development. Guided by Marxist financial and economic theory, in political and historical perspectives, the three generations of leaders of our Party represented by Comrades Mao Zedong, Deng Xiaoping and Jiang Zemin have always stressed the needs for hard work, plain living, building the country through diligence and thrift and being economical in all endeavors. Our financial resources are insufficient, and increase in revenue falls far short of the needs of our modernization drive. Some local governments even cannot guarantee funds for performing their normal functions, but such phenomena as ostentatious and extravagant behaviors and pleasure-seeking are still prevalent in some localities and departments. Budgetary funds are seriously lost and wasted. More and more luxury hotels, office buildings and auditoriums are being built and the trend is toward even greater opulence. Public money is being lavished for high consumption. This has aroused strong resentment among the people. Therefore, stressing the principle of hard work, plain living and building the country through diligence and thrift is an important measure to alleviate the imbalance between funding supply and demand and an important way of cementing ties between the Party and the government on the one hand and the people on the other and carrying forward the Party's fine traditions. We must stress the need to be politically minded and will adhere to this principle for a long time to come. To ensure the implementation of this principle in terms of systems and mechanisms, we should reform a budgetary management system and improve a financial supervision system. Financial departments at all levels should allocate funds rationally and scientifically, tighten financial supervision and management, resolutely combat extravagance and waste and fight corruption. They should take the lead in practicing economy in the use of all funds and use them where they are needed most. Our limited funds should be used to best advantage in promoting reform, opening up and the socialist modernization drive.

Fellow Deputies,

The financial work this year is arduous. Let us rally closely around the Party Central Committee with Comrade Jiang Zemin at its core, hold high the great banner of Deng Xiaoping Theory, adhere to the Party’s basic line, acquire a clear understanding of the situation and our tasks, seize opportunities, blaze new trails while forging ahead, and work together with great confidence to ensure the successful implementation of the budget for this year.